Minimum Wage Question and Answer

What is the current federal minimum wage?

The current federal minimum wage is $7.25 per hour, which translates to $15,080 for a full-time, year-round worker.

When was the federal minimum wage enacted? Why was it enacted?

The federal minimum wage was signed into law in 1938 by President Franklin Roosevelt, at the height of the Great Depression. Its stated purpose was to keep America’s workers out of poverty, and increase consumer purchasing power in order to stimulate the economy.

What is the current minimum wage in my state?

The minimum wage of any state can be found here. Twenty-nine states and the District of Columbia have raised their minimum wages higher than the current federal rate of $7.25 per hour. Five states – Alabama, Louisiana, Mississippi, South Carolina and Tennessee – have no state minimum wage laws at all (but employers there are still required to pay the federal minimum wage). Employers are required to pay the state minimum wage or the federal minimum wage – whichever is higher.

How does the current value of the minimum wage compare to its past value?

The value of the minimum wage has fallen sharply over the past forty years. In 1968, for example, the federal minimum wage was $1.60 per hour, which translates to approximately $10.90 in 2014 dollars.

What does it mean to “index” the minimum wage?

Indexing the minimum wage means adjusting it automatically to keep pace with the rising cost of living so that minimum wage workers do not lose purchasing power each year. 15 states, plus the District of Columbia, index their minimum wages to rise automatically with the cost of living. 10 states currently index minimum wage increases each year: Arizona, Colorado, Florida, Missouri, Montana, Nevada, New Jersey, Ohio, Oregon and Washington. In 2014, these states saw their minimum wages automatically go up by 10 to 15 cents, benefiting 2.5 million workers. Five more states, plus the District of Columbia, will index minimum wage increases annually beginning in future years: Alaska (2017), D.C. (2017), Michigan (2019), Minnesota (2018), South Dakota (2016) and Vermont (2019).

However, the remaining states and the federal government have not yet indexed their minimum wages. As a result, they erode in value each year. Raising the minimum wage at the federal level or in the remaining states requires an act of Congress, action by a state legislature, or a state ballot initiative. The federal minimum wage was stuck at $5.15 an hour for ten years before it was finally increased in 2007.

What is the “tipped minimum wage” or “tip credit”, and to whom does it apply?

Some states – and the federal minimum wage law – allow employers to pay a lower minimum wage to workers who typically receive tips from customers. Sometimes called a “tip credit,” these laws allow employers to pay a reduced minimum wage in light of the tips that their workers receive.

Originally, the federal tipped worker minimum wage was 60% of the full minimum wage. However, it was frozen at just $2.13 per hour in 1991. Because it has not been increased at all in the decades since then, it has plummeted in value to less than 30% of the minimum wage.

Many states provide stronger protections for tipped workers by requiring that tipped workers be paid above the federal rate. Illinois guarantees tipped workers 60% of the minimum wage. In New York and Connecticut it’s approximately 70%. And Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington guarantee tipped workers the full minimum wage – a best practice that has successfully reduced poverty among tipped workers in those states. However, other states provide far less protection, including many that follow the low $2.13 federal rate.

Tipped workers make up a significant portion of our low-wage workforce. They work as parking attendants, car wash workers, nail salon workers, baggage porters, and bellhops. The largest numbers are employed in food service, such as waitresses, waiters, bussers, and food delivery workers.

Although technically employers must make up the difference if a worker does not receive enough tips to bring him or her up to the full minimum wage, that requirement seldom kicks in since most tipped workers make slightly more than the minimum wage once tips are included. As a practical matter, the tipped worker minimum wage is what employers pay their tipped workers, and at the federal level it has not increased in twenty years.

In addition, tracking tips is complex because tips fluctuate widely, are often paid in cash, and are frequently “pooled” or shared among staff. Under such complex conditions, even law-abiding employers can have trouble keeping track, and less ethical employers can take advantage of this complex system to illegally take for themselves a portion of tips.

While business lobbyists sometimes suggest that tipped workers do not need a minimum wage because they earn decent incomes after tips are included, this is simply not the case for the vast majority of tipped workers. While a relatively small number of waiters, waitresses, and bartenders at high-end restaurants in major cities earn high incomes, the restaurant industry overall is one of the nation’s lowest wage sectors. The overwhelming majority of waiters, waitresses, and tipped workers in other industries (like car wash attendants and nail salon workers) earn very low wages. As a result, the family poverty rate for waitresses and waiters is nearly three times the average for all workers.

Are low-wage workers who are affected by the minimum wage mostly teens?

Contrary to stereotypes, low-wage workers whose pay scales are affected by the minimum wage are overwhelmingly adults, many supporting families. Adults 20 years of age or over make up 89 percent of all workers who would receive a raise if the federal minimum wage were raised to $12 per hour by 2020, according to an analysis of Census data by the Economic Policy Institute. The median worker age is close to 40 for home health care workers, one of the nation’s top-growth low-wage occupations. Especially after the Great Recession, more and more Americans are spending their careers in low-wage jobs where the minimum wage helps set pay scales.

When was the last minimum wage increased?

At the federal level, the minimum wage was last increased on July 24, 2009, when it rose from $6.55 to $7.25 per hour, the last step of a three-step increase approved by Congress in 2007. However, before 2007, the minimum wage had been stuck at $5.15 per hour for ten years.

During the 1990s and 2000s, states raised their minimum wages scores of times in response to federal inaction to raise the minimum wage. During 2004-2006 alone, 25 states acted to raise the minimum wage, including seven states where voters approved ballot initiatives to do so. Fifteen states plus the District of Columbia have adopted “indexing” for their minimum wages (see above), which results in increases most years to keep pace with the rising cost of living.

Should we raise the minimum wage in a struggling economy?

Raising the minimum wage right now is more important than ever. Minimum wage increases stimulate the economy by increasing consumer spending, without adding to state and federal budget deficits. Consumer spending drives 70 percent of the economy, and increasing demand is key for jumpstarting production and re-hiring. A raise in the minimum wage puts money into the pockets of low-income consumers, who immediately spend it at local businesses. The Economic Policy Institute estimates that the Raise the Wage Act of 2015, which would raise the federal minimum wage to $12 per hour by 2020, would result in wage increases totalling more than $79 billion for roughly 35 million workers in communities across the country. Strengthening the minimum wage can help build a sustainable economic recovery – without increasing costs for taxpayers.

And more families than ever are relying on low-wage and minimum wage jobs to make ends meet. This is because job losses during the Great Recession hit higher-wage sectors like construction, manufacturing and finance hard, while new job growth has been concentrated disproportionately in low-wage industries. Fully 58 percent of all jobs created in the post-recession were low-wage occupations, according to a 2012 report by the National Employment Law Project. This is not a short term trend – six of the top ten growth occupations projected by the U.S. Bureau of Labor Statistics for next decade are low-wage jobs, including home health aides, customer service representatives, food preparation and service workers, personal and home care aides, retail salespersons, and office clerks. Raising the minimum wage would boost pay scales in these types of jobs where millions of Americans today spend their careers.

Does raising the minimum wage cause job loss?

No. The best economic research, and real world experiences with minimum wage increases, confirms that raising the minimum wage does not cause job loss. The most sophisticated minimum wage study to date, published in November 2010 by economists at the University of Massachusetts, University of North Carolina, and University of California, compared employment data among every pair of neighboring U.S. counties that straddle a state border and had differing minimum wage levels at any time between 1990 and 2006, and found that minimum wage increases did not cost jobs. A companion study published in April 2011 found that these results hold true even during periods of recession and high unemployment. For more research on the effect of the minimum wage on employment, click here. A widely-cited 2013 study by the Center for Economic and Policy Research reviews the past two decades of research on the impact of minimum wage increases on employment and concludes that “the weight of the evidence points to little or no effect of minimum wage increases on job growth.”

Does raising the minimum wage hurt teenage workers?

No. A recent rigorous study by economists at the University of California examining the impact of minimum wage increases on teen unemployment found that even minimum wage increases implemented during times of high unemployment – such as the recessions of 1990-1991, 2001 and 2007-2009 – did not result in job losses for teens or slow employment growth.

Critics like to suggest that the last increase in the federal minimum wage in 2009 caused a spike in teen unemployment. But as a NELP report demonstrated in 2011, teen unemployment rises faster than adult joblessness during every recession – whether or not the minimum wage goes up. This is because teens are the last hired, and so are always the first fired when the economy shrinks and adults compete with them for scarce jobs.

Will employers leave my state if it raises its minimum wage?

No. Most minimum wage employers are service sector businesses that are tied to a state because that is where their customers are – businesses like fast food, retail stores, and home health care services, for example. Indeed, a New York Times profile of businesses on either side of the Washington/Idaho border at a time when Washington’s minimum wage was nearly $3 higher than Idaho’s found that businesses in Washington were flourishing, despite predictions that the higher minimum wage would send jobs and businesses fleeing across the state line.

Will employers go out of business if they have to pay a higher minimum wage?

No. While opponents frequently make this claim, research and experience demonstrate otherwise. In fact, many of the loudest minimum wage opponents are the country’s largest and most profitable companies. A 2012 report by the National Employment Law Project found that two-thirds of all low-wage workers are employed by large companies rather than small businesses, and that the vast majority of the largest low-wage employers in the country are earning strong profits and can afford higher wages.

It’s also important to remember that since the minimum wage has lost so much value over the last several decades, employers today are actually being allowed to pay less – in real dollars – than they were in the late 1960’s.

How could employers benefit from a higher minimum wage?

Raising wages reduces costly employee turnover and increases productivity. When the minimum wage goes up, employers can enjoy these benefits of paying higher wages without being placed at a competitive disadvantage, since all companies in their field are required to do the same. Research has documented how, especially in low-wage industries, raising wages reduces turnover, because workers who are paid more stay with their current employer longer. For example, a study of the effect of a wage increase for workers at the San Francisco Airport found that annual turnover among security screeners plunged from 95 percent to 19 percent when their hourly wage rose from $6.45 to $10 per hour. This reduced labor market churn yields significant savings for employers by reducing recruitment, re-training and re-staffing costs, which both studies and trade association analyses have found to be significant, even in low-wage sectors.

What’s the difference between the minimum wage and a living wage?

It is generally understood that the minimum wage – even in states with higher-than-federal rates - is inadequate to support a family of any size. As a result, the concept of a “living wage” has gained popularity, as advocates, academics, and policymakers have explored other ways of defining a wage level adequate to support a decent standard of living in America.

Examples of these alternative standards include the Economic Policy Institute’s “Family Budget Calculator,” which compile the costs of essentials such as housing, food, child care, transportation and health care in different regions of the country and different family sizes to estimate the income required for families to meet basic needs at a minimally adequate level.

The term “living wage” has also come to describe local ordinances that require employers that benefit from publicly funded service contracts and/or economic development subsidies to pay higher wages and/or offer health care coverage to their employees. Generally, living wage ordinances require wages that are significantly higher than federal or state minimum wages – typically $10.00-$14.00 an hour (sometimes set at the poverty level for a family of 4). After years of grassroots advocacy starting in the early 1990s, more than 120 cities across the nation currently have living wage laws. NELP has compiled a list of these ordinances and their provisions here.

Are there any efforts going on to raise the minimum wage in my state?

Legislation to raise and/or index the minimum wage has been introduced in several states. In some of those states, activists are organizing campaigns to support the increase. In other states, the minimum wage has come under attack and worker justice advocates are fighting back. Click here to see what’s going on with minimum wage campaigns across the country -- on the federal, state and local levels.